Consumers: Make More, Spend More

Last week was “risk-off” for stocks. This week, not so much.

Despite Boeing’s (NYSE: BA) 10% drop, initially pulling the Dow Jones down with it, stocks rebounded nicely on Monday and ended a five-day losing streak.

I’ve been saying volatility was going to rise, and last week it did across all sectors. But at this week’s open, that volatility has since backed off.

Most of what drove stocks lower over the past few months was doubt over the U.S. trade deal with China. And it doesn’t help that their economy has been slowing down.

We’re also seeing a slowdown in Europe. The uncertainty with Brexit is destabilizing. That uncertainty seems to be the only certainty, according to Britain’s Prime Minister Theresa May.

Economies in the major industrialized nations are naturally linked by trade. So, when one major economy falters, other major trading partners are likely to follow. It serves as an indicator to things to come. If China and Europe are already slowing, the U.S. economy is bound to slow as well.

In fact, we’re already seeing signs of slowing…

January Retail Sales…

The Census Bureau is still catching up on updating retail sales figures.

Consumer spending comprises nearly two-thirds of our economy and retail sales makes up half of all consumer spending. When spending slows, it stands to reason our economy will slow. Remember the horrific December sales report?

I’ll remind you that sales were reportedly down 1.2%. Headline sales were revised even lower in the latest report – down 1.6%. And when autos and gasoline were taken out, sales were adjusted lower from down 1.4% to 1.6%.

Some analysts, including myself, thought that the Census may have just gotten it wrong when they reported the dismal December sales and indeed they did! Only it wasn’t better than expected… it was worse.

So, Monday’s update of January retail sales was technically better than expected – up 0.2% on the expectation of a 0.1% increase. Excluding autos and gas, sales were up 1.2%, doubling the expected 0.6% rise.

But we can’t get all that excited if we take December and January together.

I blame poor retail sales on the governrnment shutdown. If people aren’t earnrning money, how can they spend money? And if wages don’t rise, spending can’t increase. See the connection?

February sales will be reported on April Fool’s Day. We’ll have to wait until then for the punchline…

New Jobs Sparse While Wages Jump

Nonfarm jobs were expected to rise by about 175,000 in February, but only added 20,000. Stocks initially sold off sharply due to the news…

The unemployment rate dropped to 3.8% from 4% because of furloughed federal workers returnrning after the shutdown.

Earnrnings were expected to rise 0.3%. Instead, earnrnings jumped up by 0.4% after moving up by only 0.1% in January. Year over year earnrnings rose 3.4% – higher than the 3.3% analysts expected. Despite that jump in earnrnings, traders seem to be focused on the disappointment in new jobs created. Stocks ended lower for the fifth day straight.

Treasury yields are also slightly lower as money is flowing into the safety of bonds. Long-term Treasury yields sit at about 3.04%. The low end of the recent range is down around 2.99%. Despite last Monday’s stock rally, Treasury yields didn’t move all that much. And yesterday was a mixed bag. The S&P 500 and the Nasdaq surged again while Treasury yields fell back under 3%.

It goes to show that stock traders are looking ahead for some good news – like a trade deal with China. On the other hand, it highlights the uncertainty Treasury bond traders may be experiencing. When yields fall, investors are nervously buying bonds as a safety net for whatever is ahead for the economy.

We’ll see who’s right soon enough and we’ll see how the Federal Reserve sees the economy in just a few days.

Next week, the Federal Reserve will meet to update economic forecasts and decide if its course to hold steady on interest rates is still appropriate. Despite how cautious the Fed tries to be, its decisions – and sometimes just the comments alone – tend to move the markets.